2025 (5) TMI 1646 - AT - Income Tax

Addition u/s 68 - cash deposits in Bank as unexplained credit - HELD THAT - Both the Revenue and the assessee have been unable to justify and cement their respective stands with corroborative evidences. And considering that the Revenue accepts the fact of the assessee carrying out property dealing activity in the impugned year the confirmation of entire addition of Rs. 25 Lacs explained by the assessee as cash sourced from advances received in his business and Rs. 45 lacs as cash sourced from sale of property in the course of business we hold is not justified. To meet the ends of justice therefore we hold that a total of 1/3rd of the cash attributable to the both sources i.e 1/3rd of Rs. 70, 43, 700/- (Rs.25lacs Rs. 45, 43, 700/-) amounting to Rs. 23, 47, 800/- be treated as from explained sources while the balance 2/3rd amounting to Rs. 46, 95, 900/-, be treated as from unexplained sources and the addition be sustained.

Summary

The core legal questions considered in this appeal revolve around the applicability and interpretation of Section 68 of the Income Tax Act, 1961, which deals with unexplained cash credits. Specifically, the issues are:

1. Whether the cash deposit of Rs. 25,00,000/- in the assessee's bank account, claimed to be an advance from one Shri Prahlad Singh for purchase of a plot, was duly explained and could be excluded from unexplained credit under Section 68.

2. Whether the cash deposits amounting to Rs. 57,13,000/- received from various persons as consideration for property dealings were satisfactorily explained and substantiated, thereby negating the addition of Rs. 45,43,000/- as unexplained cash credit under Section 68.

3. The extent to which the assessee discharged the onus of proving the identity, creditworthiness, and genuineness of the creditors and transactions as mandated under Section 68.

Issue 1: Explanation of Rs. 25,00,000/- Cash Deposit as Advance from Shri Prahlad Singh

The legal framework under Section 68 requires the assessee to satisfactorily explain the source of unexplained cash credits, including proving the identity and genuineness of the creditor and the creditworthiness of the source. Precedents emphasize that mere denial or contradictory statements from the creditor can affect the credibility of the explanation.

The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the assessee's explanation on the grounds that Shri Prahlad Singh initially denied giving any advance, later admitted to it, and there was no written agreement or registered document evidencing the transaction. The entire deal was carried out in cash, and the absence of corroborative documentary evidence led to the conclusion that the addition was justified.

The CIT(A) relied on the contradictory statements of Shri Prahlad Singh and the lack of documentary proof, including the non-existence of a registered agreement or sale deed, to hold that the assessee failed to discharge the onus under Section 68. The AO's remand report and the CIT(A)'s findings emphasized that the contradictory statements and absence of banking channel transactions undermined the genuineness of the transaction.

However, the Appellate Tribunal observed that the last recorded statement of Shri Prahlad Singh affirmed the payment of the advance. The Tribunal found the rejection by the CIT(A) to be based on surmises and conjectures without corroborative evidence to dislodge the later admission. The Tribunal noted that the initial denial could not outweigh the subsequent admission and that the absence of a written agreement, while a factor, was not conclusive.

Applying the law to the facts, the Tribunal held that the assessee's explanation was not wholly implausible and that the addition of Rs. 25,00,000/- as unexplained credit was not entirely justified. However, recognizing the lack of documentary evidence and the contradictory statements, the Tribunal did not fully exonerate the assessee but allowed partial relief.

Issue 2: Explanation of Rs. 57,13,000/- Cash Deposits from Various Purchasers

The AO had accepted Rs. 6,30,000/- out of the total Rs. 63,43,000/- as advances from four purchasers who appeared before the AO and confirmed payment. The balance Rs. 57,13,000/- was treated as unexplained credit due to lack of substantiation, absence of matching conveyance deeds, non-inclusion of the assessee's name in sale deeds, and the failure to produce the majority of alleged purchasers.

The CIT(A) granted partial relief by accepting Rs. 11,70,000/- from five additional purchasers who appeared during remand proceedings but confirmed the addition of Rs. 45,43,000/- as unexplained credit. The CIT(A) relied on judicial precedents which hold that failure to prove identity, creditworthiness, and genuineness of creditors justifies additions under Section 68. The CIT(A) noted that the assessee failed to produce the remaining 17 purchasers or provide corroborative evidence such as bank transactions or consistent conveyance deeds.

Relevant precedents cited include decisions where courts upheld additions under Section 68 due to failure to establish creditworthiness and genuineness of transactions, such as in cases of unsecured loans or share application money received from persons not men of means or without documentary support.

The Tribunal noted that nine purchasers in total (four before AO and five during remand) had confirmed payments, thereby establishing that the assessee was engaged in property dealing. This acceptance by the Revenue undermined the basis for wholly rejecting the explanation for the remaining amount. The Tribunal found that the rejection of the entire Rs. 45,43,000/- addition merely because the remaining purchasers were not produced was not entirely justified.

However, the Tribunal also recognized that the assessee failed to produce corroborative evidence for the remaining amount and failed to discharge the onus fully. Consequently, the Tribunal applied a principle of proportionality, holding that one-third of the total amount from both sources (Rs. 25,00,000/- and Rs. 45,43,000/-) be treated as unexplained credit, while the remaining two-thirds be accepted as explained.

Issue 3: Onus of Proof under Section 68 and Treatment of Conflicting Evidence

The Tribunal reaffirmed the settled legal principle that the assessee bears the onus to prove the identity, creditworthiness, and genuineness of the creditors and transactions. Contradictory statements from creditors and absence of documentary evidence weaken the assessee's case. However, the Tribunal emphasized that rejection must be based on cogent evidence and not mere conjecture.

The Tribunal found that the Revenue's reliance on contradictory statements without corroboration, and the wholesale rejection of the assessee's explanation for the Rs. 25,00,000/- advance was not fully justified. Similarly, the wholesale disallowance of Rs. 45,43,000/- despite partial acceptance of the business activity was disproportionate.

The Tribunal balanced the competing arguments by partially allowing the appeal and reducing the addition to one-third of the disputed amounts, reflecting the uncertainty and lack of conclusive evidence on both sides.

Significant Holdings and Core Principles Established

"It is not denied that the last statement recorded of Shri Prahlad Singh affirmed having paid cash as advance to the assessee for purchase of a plot... the premise of the Ld. CIT(A) for rejecting assessee's explanation, we find it merely based on surmises and conjectures not supported with any corroborative evidence to dislodge the subsequent admission."

"Considering the entire facts and circumstances, therefore, we find that the rejection of assessee's explanation for the remaining cash of Rs. 45 Lacs merely for the reason that the remaining parties could not be produced, is not entirely justified."

"...a total of 1/3rd of the cash attributable to both sources i.e 1/3rd of Rs. 70,43,700/- (Rs.25 lacs + Rs. 45,43,700/-) amounting to Rs. 23,47,800/- be treated as from unexplained sources while the balance 2/3rd, amounting to Rs. 46,95,900/-, be treated as from explained sources and the addition be sustained."

The Tribunal confirmed that while the assessee must discharge the onus under Section 68, rejection of explanation must be based on cogent and corroborative evidence rather than mere contradictions or absence of documentation. It established that partial acceptance of the assessee's business dealings and partial corroboration of creditors necessitates proportional treatment of unexplained credits.

Ultimately, the Tribunal partly allowed the appeal, reducing the addition to Rs. 23,47,800/- as unexplained income under Section 68, thereby modifying the orders of the CIT(A) and AO accordingly.